I am a secured lender with a debenture

What can I do to protect or realise my loan?

A secured lender will rank ahead of an unsecured lender if there are eventually funds available to be paid to creditors. Secured lenders also have a wider choice of options for the enforcement of action than unsecured lenders.

Secured lenders will generally fall into two main types: those with a Fixed Charge over a specific asset or class of assets (e.g. a lease creditor who has funded the purchase of a piece of plant) or a Fixed and floating charge creditor such a a Bank with a debenture. The main differences for the Company is that a fixed charge asset cannot be sold without the permission of the creditor, whereas floating charge assets (such as stock or book debts) can be sold / realised without reference, but on an insolvency event the lenders rights crystallise over those floating charge assets and they become fixed charges. Land and buildings will usually be secured by a Fixed Charge such as a Mortgage, and there may well be a Fixed and Floating Debenture as well.

What steps can I take?

Make sure you have a full set of the correct loan documents, that your copies are signed (and witnessed if a Deed);

Review those documents to see what your rights are.

A Fixed Charge will normally restrict rights to the repossession of the asset itself, and that asset will be identified in the loan documents. Confirm with the borrower that your assets are still on site and are clearly identifiable;

A Fixed and Floating Charge lender will usually be able to place a company into Administration and to choose the Administrator who takes the appointment.

In addition a lender with a property mortgage will usually be able to appoint a LPA Receiver over a property, who is allowed to collect rent and to sell the property on behalf of the lender. LPA Receivers have limited rights compared to an insolvency Administrator or Liquidator.

Seek a meeting with your customer, ask to management accounts and cashflow statements, to look for accuracy, consistency and credibility in their preparation;

Seek advice as to how you can enforce your rights, if you have to

Your rights

Your enhanced rights over unsecured creditors mean that not only do you stand a better chance of a recovery in an insolvency, you are also better placed to get early warning of financial stress and to influence the company directors to take advice. Signs to look for will include late payments, requests for additional finance under existing loans, requests for redemption values, and contact from other lenders seeking details of your security over assets.

If your customer agrees, we can review their management accounts to see if they show signs of stress or insolvency, and if agreed, we can advise them on their insolvency options and possible restructuring routes that might be open to them. If your customer refuses to engage with you, or to take the steps you think they need to, your only option is to exercise your rights granted in your loan documents.

As always, the sooner you act, the better are the prospects of a successful outcome.

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